Sunday, March 26, 2017

The idea of having a press that is free to cover the news is generally linked to the idea they will be fair because such a freedom generally comes with a degree of responsibility. A common example is how freedom of speech should give someone the right to speak their mind but not scream fire in a crowded theater. This is where discussions concerning the press and President Trump get sticky. Somewhere in what often slips into an argument is the role of the media in presenting an unbiased view of events. This is complicated by the fact many news outlets have moved more
towards an entertainment format rather than presenting the cold hard
facts and in that regard, sensationalism draws viewers.

It is clear that over the years how we get our news has changed but it seems this is not the chief reason for declining trust. Today many people get the majority of their news over the internet. This has made a huge difference in how news is distributed
allowing people more choice in how they receive their news, however, much of the
content remains controlled by some rather strong players that often are
driven by an agenda of self-interest. This proved to be very apparent during the presidential election where many in the media
put their strong bias towards candidates front and center. It became clear to many of us that a greater force was comprised of those insiders currently in control and yearning to extend their run. Another name for
this group is the establishment.Many
times supporters of both non-establishment
candidates Donald Trump and Bernie Sanders
were miffed and less than overwhelmed to see how poorly their candidates were treated by the press.

In many ways, the media has become viewed more as a tool of the establishment than the protector of the people and defender of our rights. This could explain why the press is often held in such low esteem by the very public that relies on them for information. Coverage filled with subtle digs or comments and even subliminal messages taint the premise media is fair. As things unfold and we move forward the relationship between the Trump administration and the media will clarify itself. In reaction to Trump dressing down certain news agencies or groups for bias coverage, we immediately see the fear card thrown down on the table and warnings about how dictatorships are formed. I'm a bit tired already of this charade rolled out by the press, however, a bigger concern is the cultural damage it will cause by widening the social divide we already have in our heavily polarized country.

In September of 2016 according to a new Gallup poll. the American public’s
trust in the media had fallen to its lowest point since they began asking respondents
whether they had trust and confidence in the media. Only thirty-two
percent of the respondents in Gallup’s recent national poll said
that they have “a great deal” or “a fair amount” of trust in the mass
media. This is an eight percentage-point drop compared to 2015 and it marks the lowest
point in Gallup’s polling history, which began asking respondents
this question back in 1972. Public
trust in the media fell among respondents across the political spectrum, it did not matter if they were Democrats,
Republicans, and Independents, but the decline in trust in the media was
most pronounced among Republicans, whose confidence in the media dropped
from 32 percent in 2015 to 14 percent in 2016.

Brian Williams The Poster Child Of Untrustworthy Media

It is during interviews we often get an opportunity to
witness examples of
just how badly you can treat a guest invited to answer questions. Over
the top efforts to put words in someone's mouth and take statements
out of context then spin them in the most harmful ways is shocking. If the guest represents views differing from the interviewer what we often see is an ambush. If a guest is favored or their views are endorsed it is often as though they had written the softball
questions asked of them or as if she had seen the questions in
advance or controlled the interview.This can be backed up by a series of
scripted statements that all loop back around to support a hard or subliminal
message. With such coverage being very common it is little wonder that Americans question the
honesty of the media whose ranks appear to have become filled with
opportunist and bums dressed as journalist.

A fair amount of attention has been spent on "fake news" but just as important is the amount of media coverage that falls into the category of hype. Highlighted by a banner proclaiming "Breaking News" that stays on the screen for hours as we watch the same news clips and footage we have already
seen several times. This is generally accompanied by rampant speculation geared to
tantalize the viewer. The Sunday morning talk
shows that claim to focus on the nation and the news that affects all
of us have also suffered. Rather than addressing important issues,they continue dishing out a heavy dose of Trump
bashing. Tricks such as taking comments out of
context, straight-out misstating his position then putting it in an
unpleasant light. This blatant bias coverage leaves many people wondering if the so-called "free press"
is working for us or under the directive of greater forces seeking to
control events.

The bottom-line is that we out here beyond the beltway in the backwaters and wilds of America should
remember the media has a casual relationship with the truth. Just because the media or a politician says
something does not make it true. It is interesting to note that many of the major media websites do not
offer a comment area, or if they do they are restrictive in the comments
they accept. This could be considered a form of censorship because it
appears they would rather not show the views of those who disagree. It is becoming more obvious each day that the mainstream
media has taken upon themselves the job of controlling our discourse.
News heavily skewed to disparage Trump and comprised of an unrelentless barrage
of
attacks do little to inform, bring us together or create calm between Nations. With such coverage, the media risk a growing backlash and losing the little
credibility they have.

Footnote; A while back I wrote a piece that looked at the definition of propaganda. It is a form of
communication that is aimed towards influencing the attitude of a
community toward some cause or position by presenting
only one side of an argument. Propaganda is usually repeated and
dispersed over a wide variety of media in order to create the chosen
result in audience attitudes. It explored how the White House during Obama's time in office took this to a whole new level where it creates
a message by spinning, scrubbing, molding, and shaping it, they then
send it out to the public. More on this subject in the article below.http://brucewilds.blogspot.com/2013/04/white-house-propaganda-machine.html

Saturday, March 25, 2017

One of the most remarkable features of our current economy is that
interest rates are basically flat or negative in real terms and are
expected to remain so. This is not unprecedented. Real rates were
negative after the second world war and again in the 1970s. But in both
cases, inflation indicators were higher than what is being forecast today. Headline inflation
rates have been and remain relatively low because of the slow economy and lack of demand.
With short rates
close to zero, real rates will stay negative. With ten-year government bond rates hovering around 2.5% and the
three relevant central banks targeting an inflation rate of 2%, it would not take much for bond
investors to actually lose money in real terms.

Debt Has Been Growing Much Faster Than GDP

The level of interest rates is normally viewed as an effort to balances
several forces at work within an economy such as the desire for saving with the demand for investment. So negative real
rates indicate that savers are incredibly cautious and that
businesses are reluctant to invest in new projects during a very weak
economy. Central banks attempt to affect this price by setting “base”
rates at which they will supply
liquidity to banks. Their intervention has had an impact,
although it is hard to quantify. Note; the aim of these policies is to
discourage saving thus boosting consumer
demand. Low rates are also supposed to encourage business borrowing
and boost employment, but often it also encourages savers to take on
more risk than they should when they search for higher yields. This creates a full "risk-on" mentality that can wash away common sense.

The policy of rapid credit expansion while an interesting concept often
brings with it negative consequences. Currently, it is being put to the
test as new problems emerge in China where we saw the amount of GDP
growth generated by each infusion of money decrease over
the last four years. At the end of 2015 Chinese GDP to debt stood at a massive 258%. This should be taken as a warning that economic
exhaustion and overcapacity results from continually priming the pump.
In 2014 Wei Yao from Societe Generale warned the debt service ratio of
Chinese companies
has reached 30% of GDP the typical threshold for financial crises.
This means many companies will not be able to pay interest or repay
principal. She
warned that
the country could be on the verge of a "Minsky Moment" when the
debt pyramid collapses under its own weight. "The debt snowball is
getting bigger and bigger, without contributing to real activity," she
said.
The total credit in China's financial system is estimated to be
as high as
221% of GDP and has jumped almost eightfold over the last decade.

When an economy is growing rapidly, there is generally an
abundance of profitable investment opportunities and businesses are happy
to borrow at high real rates. In a sense, then, the level of real interest rates sets a hurdle by
which profitable projects should be judged. If the rate is held at an
artificially low level for too long, a big danger is that capital may be misallocated and flow into speculative investments. A recent report from the Bank for International Settlements points to a number of other problems that negative real rates
can cause such as tempting borrowers
into ignoring their balance-sheet problems. This can result in problems being allowed to fester, making it more difficult for central banks to
raise interest rates in the future.

Banks may also become too optimistic about the ability of borrowers
to repay, and fail to make adequate provisions for bad debts. It also encourages banks to borrow short-term from the central
bank and lend long-term to the government is a public subsidy that causes many taxpayers to
scream foul! Another problem is that pensions also invest in bonds and use the income to fund future payouts. As yields
fall it will make it harder for them to honor future obligations. Low-interest rates in the developed
world
may have had spillover effects in emerging markets, pushing up exchange
rates, increasing speculation and causing asset bubbles (such as Chinese
property) and, until
recently, inflating commodity prices. We must keep in mind that when rates do eventually rise we will most likely see a painful unwinding of these investments.

Savers are suffering from these low-interest rates. The leading edge of
the massive Boomer generation knows
that every dollar spent is a dollar it cannot re-earn or
replenish. Lower rates in effect have caused many older Americans to hoard
their wealth. Boomers have little
choice but to, keep that older car for an extra
50,000 miles, cancel remodeling projects, and make the grand-kids fund
their own education if that want to extend the life of their savings. This often means that with less interest income they are purchasing a
lot fewer electronic gadgets and spending vacations in the backyard.
Tens of millions of Americans are either in this position now or
about to become so.

On the flip-side, many people with little savings have rushed out to buy cars and expensive items they really can't afford and pulled consumption forward. Ironically as the country's most responsible citizens hunker down we see lenders leaning into the wind and playing Russian roulette with high-risk loans to those with poor credit records that may never be repaid or have to be written down. The premise being that when you charge interest in the high teens even after the write-downs you come out ahead. The bottom-line is that all the above trends and reactions to lower interest rates feed into a situation that is not particularly healthy, fair, or logical. As a result of these low-interest rates this "recovery" has been built on a false base and been far less robust than originally hoped. The legacy of Central Banks pursuing this "low rate" solution will be more problems down the road.

Thursday, March 16, 2017

In science and philosophy, a paradigm is a distinct set of concepts or thought patterns, including theories, research methods, postulates, and standards for what constitutes legitimate contributions to a field. Currencies are trading in a false paradigm in that they have been sheltered from the storm of volatility by existing in a rather closed system. Wealth is contained within this system of fiat money by laws and rules that discourage freedom of movement. It is the coordinated collusion of the major central banks that has allowed this charade to exist. The fact it has not been recognized or acknowledged does not alter nor does it guarantee the system will continue. The failure of any of the world's four major reserve currencies will destroy the myth that major currencies are immune to the same fate that has haunted so many currencies throughout history when the nations granting them have proven unable to control their budgets and been crushed under the weight of debt.

Central Bank Balance Sheets Have Exploded

One thing the global economy doesn't need with all the uncertainty that is currently floating around is unstable currency markets. When you consider just how destabilizing currency swings can be it is easy to see how a strong dollar could obliterate the global economy. It should not be a surprise in our current situation that behind the curtain central bankers could be busy manipulating currencies so they trade in a narrow range that will not rock the boat. Over the years countries have become very adept at coordinating policy and currency swaps are only one of the tools they use which now extends to even investing in stocks. When the dollar began to soar back in late 2014 the fear index began to rise and concerns were heard about the stress it was causing in countries that owed a great deal of debt that would have to be paid back in dollars rather than their own currency.

As far as the idea China will tank the dollar because they are reducing their holdings of U.S. Treasuries in order to support the yuan a different story is emerging. We must remember the world currency market is a complicated place full of paths that fall away or come back on themselves and many of the tools used are like a double-edged sword that cut both ways. In the case of China, capital is sneaking and flowing out of the country faster than the government can create new ways to bolster the currency and sadly for them it is flowing into America strengthening the dollar even more. Adding to China's woes is that as their currency falls they will hear more calls from Trump supporters to place duties and tariffs on their exports to America in an effort to level the playing field and reduce the trade deficit.

Currency Trade Creates Illusion Of Stability

Consider the possibility that currencies are trading in a false paradigm and investors should get ready for a rude awakening caused by major changes in currency values. A dam has been built to protect market stability but pressure is building and when it breaks it will wreak major damage. Part of this is constructed upon the fallacy we have been given and accepted that a major currency cannot fail or collapse. This will only become more apparent as concern over the future of both the yen and the euro become more of an issue. Both the yen and the euro have major problems going forward and while people point to the fact that behind the dollar America stands with a rapidly growing national debt it is nothing compared to the issues Japan and the Euro-zone face.

The different growth paths are a symptom of a general problem that has haunted currency unions for centuries. Competitiveness and productivity develop at a different pace in different countries. Over time, this leads to large differences in growth and the shifting of wealth among the members of a currency union.When the dollar union of the U.S. threatened to fall apart during the Great Depression because of the different economic conditions and unequal potential apparent between states, the federal government found it necessary to enact federal income transfers from prosperous states to aid ailing ones. The federal budget rapidly increased and this practice of income transfers from one state to another to bind the states together as a union became permanently embedded in our system.

While in the United States a no bailout policy of crisis-hit states that had been enacted decades ago remains a somewhat "masked equalizer" accomplished through inter-system wealth transfers has contributed that special something that the Euro-zone completely lacks. Inequality has a way of growing and must be addressed early, After a certain point, it becomes too late to implement such a system that transfers wealth from the most prosperous to the most needy because some people will without a doubt feel cheated and others resentful. The bigger a debt problem and inequality is allowed to grow the more people and institutions suffer when they become the victims of a default. Greece has fallen and continues to suffer the consequences of this while much bigger countries like Italy and Spain are teetering on the brink.

During the last several years the question of how to exit the Euro-zone monetary union and the euro has become an important economic issue. Uncertainty and fear relating to its costs tend to discourage political leaders from taking the risk and decisive steps towards an exit but if one or more sizeable countries bolt from the shelter of the euro or the Euro-zone the currency could quickly unravel. A major cause of the Euro-zone problem is growing inequality among its members exacerbated by the lack of system-wide bank protection which causes money and wealth to flee the weaker countries and their failing banks. Japan faces an entirely different problem while national debt is an issue for the central banks that issue both currencies. Japan's debt is much larger and the country faces a demographic crisis that leaves it forced to support a population comprised of citizens far too old to work.

These problems give credence to the possibility that both of these currencies will fail at some point and if they do it is very likely that in our modern era, where wealth leaps across borders at the push of a button, their death will be fast, and swift. Like many Americans, I have railed against our growing debt and questioned whether it would destroy the dollar, however, when looking at the miserable alternative currencies before us the dollar is without a doubt king. We must not underestimate the advantage the dollar has being the world's reserve currency or the size of debt floating across the globe comprised in dollar based agreements. If the dollar proves victorious in the currency wars and is indeed the last major currency standing the people of America will reap the benefits of a game well played or just plain luck.

Monday, March 13, 2017

Some problems have no easy solutions and how to deal with a North Korea that is again threatening war is one of them. A big problem is that any minor skirmish in this volatile region of the world could rapidly spiral out of control.Slightly smaller than the state of Mississippi the country has a population of over 24 million people and borders China,
South Korea, and Russia. The interior of the country is mountainous, isolated, and
sparsely populated. Following World War II, Korea was split in two with the northern half coming
under Soviet-sponsored Communist control. After failing to conquer the U.S.-backed southern portion known as the Republic of Korea (ROK) in the Korean
War (1950-53) the country has remained divided.

For over six decades North Korea, also known as the Democratic People's Republic of Korea (DPRK), has adopted a policy of ostensible diplomatic and
economic "self-reliance" as a check against outside influence. Part of this policy is displayed by how North Korea has demonized the U.S. as the ultimate threat to its social system through state-funded propaganda coupled with political, economic, and military policies around the core objective of eventual unification of Korea under Pyongyang's control. Kim Il Sung's son, Kim Jong Il, was officially designated as his father's successor and took control of the government following the death of his father in 1994. Kim Jong-un was publicly unveiled as his father's successor in
September 2010. Following Kim Jong Il's death in December 2011, the
regime began to take actions to transfer power to Kim Jong-un who has now assumed his father's former titles and duties.

Decades of economic mismanagement and resource misallocation have haunted North Korea and forced the country to rely heavily on international aid to feed
its
population since the
mid-1990s. The DPRK began to ease restrictions to allow semi-private
markets, starting in 2002, but then sought to roll back the scale of
economic reforms in 2005 and 2009. North Korea has a history of being a regional
bad boy with its military provocations, the proliferation of military-related items,
long-range missile development, supporting unstable nations, and WMD
programs including tests of nuclear
devices. They
have also developed long-range missiles capable of reaching targets in
Japan and
U.S. bases in Guam, Okinawa and the Japanese mainland.

Seoul Only 35 Miles From The DMZ

North Korea’s massive but poorly trained and equipped military is ranked fourth largest in the world. They could
cause significant damage in the early stages of an attack on its
southern neighbor but any attack would
ultimately be repulsed by superior U.S. and South Korean forces. Analysts say North Korea’s aging military would
not be able to prevail long term in an attack against its southern
neighbor. North
Korean forces are arrayed along the demilitarized zone with 10,000
artillery pieces capable of reaching the south's large modern capital of Seoul, Bruce Klingner, a
former CIA analyst has pointed out the proximity of Seoul to the world's most heavily armed border would
let the North Koreans cause a lot of casualties and damage in the initial stages of
an attack. Just last Friday Klingner told Fox News. “We can expect an [intercontinental ballistic
missile] test this year with full capability within the next few years,”this confirms what many people have tried to ignore.

Any conventional attack from the North aimed at South Korea would likely begin with an
artillery barrage, which could include chemical weapons. “They would try
to overwhelm U.S. and Korean forces with volume,” Klinger said. Any initial
assault would face about 28,500 U.S. troops and about 600,000 troops in
the South Korean armed forces. “In the war game simulations eventually
we prevail, but it’s World War I (levels of) casualties,” he said. While analysts say a full-scale conflict is
extremely unlikely they note that
the Korean Peninsula has remained in a technical state of war for 60
years. Still the recent and continued threats toward Seoul and Washington,
including a vow to launch a nuclear strike, have raised worries that a
misjudgment between the sides could lead to a clash.

Most North Korea watchers have traditionally urged the West not to
take the regime’s wild language at face value and have downplayed its
military capabilities. Still, following growing provocations from North Korea and it’s launch of four missiles into the Sea of Japan on Monday and claims from Pyongyang the launch was a drill for striking American military bases in Japansome are beginning to take a different line. Chris Hill,
a former U.S. diplomat like many of those keeping an eye on the situation see the threat of war by miscalculation is increasing. While many people do not think the Kim regime wants a conflict he may underestimate how much the sabre-rattling has raised the possibility to a new and dangerous
level that could accidentally lead towards a broad conflict. Adding to the uncertainty is that just last week South Korean President Park Geun-hye was forced from office plunging the key U.S. ally into political turmoil.

North Korea Launches Five Ballistic Missiles

For many years
America has pursued a strategy of hoping in time things would get
better as the people of North Korea demanded more goods and
western style comforts, this was to be the catalyst to move the country towards freedom. When the last foul
leader died officials
hoped that North Korea's young leader would prove
to be a reformer, instead lines have harden and cooperation has
deteriorated. The same people that were once hopeful and counseled we should give the situation time to change are now increasingly worried that Kim Jong-un might blunder
his way
into a war. Even as they publicly describe his recent bellicose threats as bluster, administration officials have
stepped up visible demonstrations of American military power. Currently,
all signs coming out of North Korea are not constructive to a peaceful
co-existence, it is possible that they have become so delusional and
paranoid that there is no turning back.

The real problem is how best to resolve the issue before it
becomes a full-blown crisis. For years many "tough guy Americans" have
seen the answer as to, just "Nuke the bastards," but this is easier said
than done and has some huge negative ramifications. In the current political environment, even an attack from the North that falls well
short of anything nuclear will probably provoke what might be considered a very harsh
response. While there are still many people in the West, who because of its long history of
bellicose rhetoric and threats have come to discount the
threat of North Korea as a joke doing so could be a big mistake. This situation highlights
the difficulties of dealing with rogue nations. We should not
be downplaying this threat and it is possible we may be facing a watershed event
that makes limited nuclear war commonplace.

None of us has any real knowledge of the motivation, or how years of propaganda have affected the average North Korean
soldier. Several times in history the ink has only begun to dry
on a peace accord before one of the participant attacks totally
unprovoked and this means what may happen is often hard to predict. Forthcoming events may
well dictate and set in motion war game scenarios that have been played out hundreds of time and are to be used as a blueprint for our future actions. It is very important America and people throughout the world realize and internalize the potential for a million
or more dead North Koreans and many of their neighbors to the south, this does
make this situation dire indeed. There should be little doubt the situation in Korea has the potential in a very short time to make the events having taken place in Syria over the years appear tame by comparison.

Sunday, March 12, 2017

To the many who see government spending on infrastructure as a job creator and a silver
bullet for our ailing economy I would like to raise a word
of caution, things are not that simple. What is clear is that when Washington begins to talk infrastructure spending hands go out across America as politicians and businesses rush to endorse such programs, of course, the first words out of their mouths is this should be administered on a local level so the money is not squandered by the inefficient minions of Washington that don't understand the priorities we face. This sets in play the feel good issuance of what is herald as free money being gifted by those in charge. What is their not to like?

When it comes to the virtues of infrastructure spending it may be time for a truth-off. The truth is more "bridges to nowhere"
and wasted spending exists then the taxpayer could ever imagine. Often
infrastructure spending falls short of creating real wealth for our country but merely feeds cronyism and ends up lining the pockets of those in power and their friends. In my
book Advancing Time, I wrote about a bridge that was replaced in Fort
Wayne, Indiana that even the city's leading newspaper said we did not
need. The newspaper had gone on to state the bridge did not "need" to be
replaced but only needed minor repairs. Here is a paragraph from the
book:

A pork-barrel project
that drained federal coffers!

--------------------------------If we think local media is helping guide government to do the right
thing, we should be troubled. In the city where I live a recent Sunday
newspaper editorial commented about the cost of a bridge project, that
will be covered by an earmark from Senator Even Bayh. The article states
"Does the four million dollars represent yet another pork-barrel project
that drains federal coffers? Most likely. But once the money is
designated, it would be foolish to give it back."
----------------------------------

Bottom line, nothing has changed over the last several years that
indicates the media, government, or planners have become better and far
more responsible in how infrastructure money is spent. More telling is a
look at the bridge I wrote about that has now been completed. In the end, the bridge final cost
was closer to ten million dollars, and it now sports the name the "Martin Luther King Jr. Memorial Bridge". After the bridge was
structurally complete the plans called for the builder to come back and
top it off with a million dollar plus metal structure that gloriously lights up at night. This was all built to hold the lights that change colors at night making it a landmark with a "wow" effect.

To justify the extra cost of the iron structure that sits over the bridge and the lighting it holds officials assigned the bridge a new role, to act as a gateway into downtown. A
huge ugly sign over the bridge, large monuments on each side of the
approaching end, plus large plaques along the spacious sidewalks are few
of its features. The so far unmentioned and most wasteful use of
taxpayer money would be the benches that line both sides of the bridge,
why do you need twelve foot wide sidewalks sporting benches on a bridge?
I estimate that considering the expensive real estate they sit on these
benches that I have never seen used and hinder snow removal came at a finished cost of well over one hundred thousand dollars each to the taxpayer.

While handing out and touting the virtues of infrastructure spending we are told how in the long run these improvements and upgrades will pay for themselves over time making such programs a win-win situation. Still, the fact this is not paid for and adds to the budget deficit has drawn criticism even from the liberal economist, Joseph E. Stiglitz, an article he wrote that appeared on Project Syndicate
contained the statement, "The only way Trump will square his promises
of higher infrastructure and defense spending with large tax cuts and
deficit reduction is a heavy dose of what used to be called voodoo
economics." In all fairness, this was taken out of context in what was more or less an anti-Trump piece but it highlights the fact negatives to such programs do exist.

The crux of this issue again centers on the sweet allure of getting and receiving the benefits while
setting back the negatives, this story is not new or is the desire from
which it flows. The myth of a "free lunch" or the idea we will gladly pay you Tuesday for a hamburger today always tends to surround these big pro- growth initiatives. Time and time again history shows these big promises fall short of their goals and come at a huge price when all is said and done. My concern continues to be this spending will add to deficit spending and an increase in the national debt and at some time we will be forced to pay the debt incurred for money poorly spent, It was Winston Churchill who said, "The era of
procrastination, of half-measures, of soothing and baffling expedients,
of delays, is coming to a close. In its place we are entering a period
of consequences." And that is the problem.

If you think this kind of mindless infrastructure spending will help
America it could be based on the fact the media, many politicians, and the
businesses that benefit from it are constantly telling you of its
virtues. A "Truth Off" would show that infrastructure spending is not even close
to being a silver bullet to cure our economic woes and America is not an uncompetitive third world
country.Sure this kind of spending creates jobs, but at a horrible
cost that must be paid at a future date or eventually bankrupt the
country. The grandiose planners and politicians love free money,
unfortunately, there is no such thing. When looking at the facts we find the jobs
created from infrastructure spending are often short lived and not a fix for the structural and
employment problems plaguing America.

Thursday, March 9, 2017

While history is important to remember it does not define the future. While pondering the current economy that is becoming more of a conundrum every day I stumbled upon an analogy I would like to share. The global economy is like a Rube Goldberg machine, one of those contraptions built in a ridiculously
complicated way to perform what would normally be a simple task. Competitions are held to build these machines and in such a contest the designermakes a great deal of effort to complicate the task in an entertaining way by adding far more steps than are necessary.

Rube Goldberg machines often mimic the real world in that they are goal oriented with many parts comingtogether to complete a task. In the real world, things are usually not intentionally designed to be complicated but the reality is that they just are. More often than we would like to admit various systems and parts are thrown or "cobbled together" in a haphazard way to get the job done. We tend to try and explain events in terms of cause and effect but in doing so the bigger picture has a way of getting lost. Often hidden away is the nature of the risk that results from complexity and systems becoming codependent upon other. Bestselling author Nassim Taleb who wrote, "The Black Swan" detailed in his book how when something is highly complicated highly improbable and unpredictable events can and do occur.

History shows we often have no idea what is driving events until long after they have transpired and even then the picture is blurred by interpretation. The lens by which we peer at events is firmly controlled by those with an agenda. Even when control occasionally slips from their grasp such as when Donald J. Trump was elected President of America that does not mean that they have surrendered power it merely represents a temporary lapse in their dominance. An effort to be realistic for one moment will cause us to realize that
government, big business, and mainstream media hold the cards and
control. When we look at the individuals leading these various factions
we have little reason for faith or calm.

The Direction In Which Things Fall Will Matter

Returning to the analogy the problem with getting a good handle on what is about to happen is complicated by the massive number of variables built into events. If you take the economy, for example, guessing what a central bank might do is one thing, however, how do you make allowances for the money created to stimulate the nation's economy rushing out of the country at the tap of a button or companies using the money to buy back stock or pursuing a leveraged hostile takeover rather than investing in a new plant and equipment. The argument could be made that central banks can stack the deck but when it gets too high and begins to fall they may not be able to control the direction or who it will crush.

Just because a market or investors have reacted in a certain way in the past is no guarantee that faced with a similar situation their response will be the same or that once we hit a tipping point a self-feeding loop will not develop and take control. We have become very complacent and accepted the idea those in power will continue being creative enough to keep the economy moving forward and prolong current trends. Like a complicated Rube Goldberg machine with many moving parts, the failure of just one piece to perform as expected can alter the way events unfold. History is littered with many caution signs as to just
how difficult it is to interpret current events and their possible
impact on tomorrow. This makes it clear that looking in the rear-view mirror gives us a better image of events than predictions as to what might happen in the future. My point is, don't have a great deal of faith in our economic system because it is severely flawed and does not even meet the criteria of a well designed Rube Goldberg machine.

Footnote; For a grand display of an incredible and impressive Rude Goldberg machine energize the link below, I don't think you will be disappointed. If nothing else it is proof some people have far to much time on their hands.https://www.youtube.com/watch?v=qybUFnY7Y8w

Monday, March 6, 2017

When is an issue declared as really not that important? Possibly when it relates to national spending. It seems ages since the topic of our national budget has been front and center, and while budget issues are fast approaching serious discussions may again be pushed aside by various distractions. The subject of the budget and our deficit has dropped off the radar while the focus of the American people has wandered off to subjects like whether Trump will survive the protest and attacks from liberals and the remaining never Trump faction or what to do about Washington's last big fiasco known as Obamacare. The unfixable healthcare legislation that will always be viewed as President Obama's legacy is in deep trouble after failing to achieve its goals and to many Americans it is seen as the poster child of government failure.

Sadly, little has changed since I broached the subject of our budget in August of 2013 except we have seen the national debt explode far beyond the numbers our government predicted when President Obama took office. Somehow we have ignored this reality and we have been lulled with the rest of the world into complacency as the American government kicked the can down the road. The increase in national debt from 3 trillion dollars in 1990 to 5.75 trillion dollars in 2000 garnered far more attention than the roughly 10 trillion dollar leap that occurred during the 8 years Obama was in office. Not suffering from our failure to deal with our massive spending has only reinforced the idea that far too much has been made as to the ramifications of our out of control budget. Today Washington is divided and America polarized and even if politicians work together more government is often not the answer. The fact is for years the answer from Washington has been to spend and simply create more debt.

Debt Has Soared Above All Forecast

This time no one is referring to our financial woes as a financial cliff, the sense of urgency has vanished and been replaced by the feel of normalcy. This does not alter the fact that while we cannot talk our way out of the mess before us and putting it off and sidestepping the issue will only make it worse. The last election was proof of just how unpopular and downright dysfunctional Washington has become. It seems Congress is often off on recess, which is a thing many of us who live in the working world might dub as a paid vacation. At least we will no longer be forced to endure the broken record of President Obama busily crediting his administration with sound policy and taking credit for bringing America back from the mess he inherited. In truth, we seem no closer to addressing the problems of our nation today than we were last year or in the years before.

While the stock market has cranked out a series of all-time highs I'm troubled by the fact that as I read the news today jumping off the page are announcements from a slew of major businesses declaring their intention to close dozens of locations. Abercrombie has joined a long list of brick and mortar retailers that have announced closures this year. Also, JCPenny plans to close up to 140 stores in the next couple of months, following decisions by Macy's and Sears to close a collective 218 stores in the first half of the year. Other mall-based stores including American Apparel, The Limited, Bebe, BCBG, and Payless have also recently announced that they are shuttering all or most of their stores. This does not bode well for malls, commercial real estate, or the economy in general.

Commercial real estate such as malls and the brick and mortar buildings that line the roads of America represent jobs and trillions of dollars of stored wealth held by investors and pension funds. These store closings could be viewed as a harbinger of things to come or should we say the classic canary in the coal mine and are far more important than the value of stocks like Facebook or Tesla. Many of the Americans who felt America was on the wrong path turned out to support Trump and hoping he could fulfill has promise to "Drain the swamp" a reference to the slime filled city we call our capital but this is easier said than done. Much needs to be done but bringing our budget back under control is not a Trump priority so we should not be shocked when budget issues are only faced, and very poorly dealt with at the last minute. I am reminded of a saying I heard years ago, "if not for the last minute nothing would ever get done" it is unfortunate this has become the norm.

Budgets and spending plans to fund the government are very important in shaping the country's future and should not be taken lightly. Mixed in with Trump's good ideas and promises are a few, shall we say, that are not so good and could explode an already massive deficit. Sadly, while spending is important it is not being given "priority" status. I'm afraid this will not soon change and again we will be forced to fortify ourselves with the knowledge that the President has hit the countryside with the message that he "has again" put front and center the issue of the economy with economic growth as a priority. Speeches including tired and well-worn phrases like fairness, a more prosperous middle class, increased equality and opportunity, are messages that ring hollow without action to back them up.

Thursday, March 2, 2017

These are most interesting times for the economy and many people are failing to take note at just how unusual they are. With the markets sporting a glow from all-time record highs that are being made week after week it might be a good time to revisit the concept of irrational exuberance. Just over two decades ago Allen Greenspan who was then chairman of the Federal
Reserve coined the term irrational exuberance, however, greed might have
been just appropriate. This leaves us with the question, when will Atlas shrug under the burden of global debt and simply say, enough is enough?

Timing a major market shift is impossible and many of us who never expected the current market run to extend to where it is today have been battered and bludgeoned. Many of us have either stood aside missing the massive up move or worse yet aggressively shorted this market time and time again only to suffer huge losses. Being wrong up until now does not mean you are wrong about the outcome only that you have missed timed and misjudged how far those in power will go to prolong the illusion of stability. Watershed
events can occur in the blink of an eye or be spread out over weeks or
even months. It is important to recognize that the base on which our economy sits is comprised on ever
growing debt that is unsustainable. Because this system has been able to
exist and muddle through does not mean it can
continue but just as important is the fact that it does not guarantee that we will not suffer financial
harm as individuals.

MMT Has Sent Debt Up Up And Away

Over the years the entitlements and promises that have piled up
have become overwhelming and in order to cope the world has latched onto and embraced
Modern Monetary Theory (MMT) as the answer to its woes. Debt is often nothing more that the promise of future payment and is affected by interest rates. It appears debt does not matter in our current manipulated environment of MMT where what you pay in interest can overnight change everything by redefining the obligations outstanding and coming due.For
example, In Europe, the ECB has stepped in
to halt the economic collapse of Spain, Italy and several other
countries that were on the brink of failure because of mounting debt. The ECB did this by artificiality
lowering and altering interest rates paid on risky debt.

While altering the rate
paid in interest completely changes how budgets play out going forward
and also where people invest it has also caused the amount of debt here in America and across the world to soar. Many of the monetary
theories being applied today have not been proven over time but reflect an
attitude that we can control economic cycles better than in the past. We must remember the policies being put forth by
central bankers have massive
implications for both investors and society, this is more than a game
and it directly affects the lives of people everywhere. An economist that I have a great deal of respect
for, Allan H. Meltzer wrote a piece that appeared in the Wall Street
Journal in 2014 where he stated, "Never in
history has a country that financed big budget deficits with large
amounts of central-bank money avoided inflation."

Global Credit Growth May Lead To Inflation

I contend that never before has mankind diverted such a large
percentage of wealth into intangible products or goods and this is the
primary reason that inflation has not raised its ugly head or become a
major economic issue in recent years, it also creates an environment where debt defaults have the potential to rob millions of their wealth. Like many of those who study the
economy, my misgivings with current economic policies are many, of chief
concern is the massive debt being accumulated by governments
and the rate that central banks have expanded the money supply. If
a great deal of this money would suddenly shift into tangible goods seeking a safe haven inflation
would soar even as debts go unpaid and promises are left unfilled.

While they may tell you otherwise the average person only begins
to care about "the economy" when they are directly affected or financially slapped in the
face. To navigate the treacherous terrain of investing without a
road-map or knowledge means you travel at your own peril. This does not
mean that even a person totally ignorant of basic economics will not
have an opinion. Sometimes these people advocate weakening our currency to help exports but that would be a big mistake. The one thing Americans don't need is a weak dollar if the
world economy goes into a tailspin and crashes to the ground. A strong
dollar assures American's the power to buy assets across the
world. If a collapse in global markets does occur we will be much better off
if the dollar remains king.

It is important
to understand the nature of debt and that some
old debts will never be paid but get written off over time but the bulk of existing debt forms the
foundation to pay for future obligations and as a building base for
growth. If all debt is treated the same and diminished the value of
both savings and future payments will be devalued. This leaves the
bulk of society extremely vulnerable when a shift does occur and you do
not want to be in this group. I fear many people are being lulled into complacency as to the real economic risk that surrounds us. A glaring example of
this is
how people just assume the bank will honor their credit lines or they
will be
given access to their savings in the case of an economic crisis. During a
crisis as everyone rushes to the exit, it is naive to think you will be
served in an orderly fashion or even fairly. Mind the "small print" and remember the bank is not your friend.

When will the next financial crisis hit and how deep will it be? That is
a hard and complicated thing to predict or answer, just as difficult is speculating the
form it will take, however, it is
important to recognize several catalysts exist that could usher in a crisis scenario. Only in hindsight does it become clear. Those of us who have doubted and repeatedly predicted the collapse of this so-called recovery remain wrong because we have underestimated both the breadth and size of the global intervention of central banks and governments. Nobody in their right mind would have ever anticipated the sheer magnitude and scope of what has become a worldwide phenomenon. Central banks have gone far beyond trying to stimulate the economy they have completely reshaped it by altering the rules and papering over its flaws with a massive transfer of wealth that can only occur by creating a false paradigm or reality. The fact is debt is a heavy burden and at some point, Atlas will shrug.

Footnote; Allen Meltzer who has stated, "This will not end well" speaks out exactly one hour into the discussion linked below. There Meltzer gives his take on the direction and policy central bankers have persuaded. https://www.c-span.org/video/?409223-1/aei-hosts-discussion-role-federal-reserve

About Me

Bruce Wilds is a contractor that owns real estate in the Midwest, his holdings include apartments and office complexes. He is anchored to reality and the economy as he maintains, designs, and leases buildings. This has made him keenly aware of rapidly changing lifestyles, this blog incorporates many of the experiences and knowledge from his hands-on business style, extensive travels, and studies of history, politics and economics.